Report says more Massachusetts residents filing for bankruptcy

David Riley/Daily News staff

Friday

Jan 28, 2011 at 12:01 AMJan 28, 2011 at 7:44 AM

Personal bankruptcy filings in Massachusetts climbed nearly 9 percent last year as local attorneys who handle such cases saw more clients struggling with mounting debt and out-of-reach mortgage payments.

Personal bankruptcy filings in Massachusetts climbed nearly 9 percent last year as local attorneys who handle such cases saw more clients struggling with mounting debt and out-of-reach mortgage payments.

"A bulk of what I'm seeing are cases where people are coming to me with significant credit card debt, $30,000 or more...as well as mortgages that they simply can't afford," attorney Matthew Trask of Kelsey and Trask in Natick said.

The Warren Group, publisher of Banker and Tradesman, released a report yesterday detailing the rise in bankruptcy filings statewide since 2009.

Last year, the state saw 17,496 Chapter 7 bankruptcies, which the Warren Group described as the most common option for people seeking debt relief - an 8.5 percent increase.

Chapter 13 bankruptcies, a different type of personal filing, climbed 52 percent, from 3,547 in 2009 to 5,392 last year.

"Bankruptcy filings reflect the economy as a whole - and it's clear we are not on a fast path toward recovery," Warren Group CEO Timothy M. Warren Jr. said in a statement. "Consumers are clearly struggling to pay off the debt they've accrued over the years and are turning to bankruptcy as a last resort."

Local counties largely mirrored the statewide spikes.

In Middlesex County, Chapter 7 bankruptcies rose from 2,719 to 2,951, or 8.5 percent. Chapter 13 bankruptcies were up from 540 to 842, a 55.9 percent jump.

Worcester County saw a similar increase in Chapter 7 - 2,733 to 2,971, or 8.7 percent. But it had a much higher 64.3 percent jump in Chapter 13, from 479 to 787.

Norfolk County weathered a 10.2 percent climb in Chapter 7, from 1,223 to 1,348. Chapter 13 cases also rose from 347 to 536, a 54.4 percent spike.

Chapter 7 can eliminate most debt after non-exempt assets are used to pay off creditors, the Warren Group said. Chapter 13 differs mainly in that it requires debtors to arrange a 3- to 5-year repayment plan for at least a portion of their debt.

Some local attorneys said the marked increase in Chapter 13 filings could be seen as a sign people are starting to get back on their feet financially.

In some of these cases, people lost jobs or income and fell behind on debt payments, but now they are in a position to pay at least part of what is owed and bring accounts current.

"Sometimes the bankruptcy is to fix the problems that were created during a period of unemployment," said Robert Kovacs Jr., an attorney with offices in Worcester and Framingham.

Kovacs said the mortgage crisis seems to be the largest force driving bankruptcies he has handled. Trask largely agreed.

"They're in a situation where they're underwater on the house - they owe more than the house is worth," he said. "They may be six months behind on the mortgage, they're facing foreclosure, they've maxed out their credit cards trying to keep the mortgage current."

Framingham attorney Thomas G. Waldstein said that while his personal bankruptcy cases have been steady, he is seeing more people with higher income levels filing.

"People have hung on by paying minimum balances or sometimes even emptying their retirement accounts as long as they possibly can," Waldstein said.

"Now they've reached the end of all possibilities or assets, and they've reached the realization that even though they tried to do what was in their mind the right thing, that they are just too far behind or they are not going to be able to completely catch up," he said.

Despite the economy improving "ever so slightly," Waldstein said he thinks bankruptcy filings will remain steady for a while this year before diminishing.

"There are still large numbers of people who are struggling and are going to have to give up and get relief," he said. "I think until that group is resolved, there will be a continuing flow of bankruptcies."

Waldstein stressed that most clients are struggling with living expenses, not debt for frivolous purchases.

In one possibly positive sign, the Warren Group report said Chapter 7 filings were the slowest in the last quarter of 2010.

Chapter 11 filings for business bankruptcies and restructuring also rose statewide, from 215 in 2009 to 237 last year, a 10.2 percent increase.

(David Riley can be reached at 508-626-3919 or driley@cnc.com.)

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